Ontario’s wrong-headed energy policy burns 75,000 jobs

The province’s manufacturing sector may find itself even less competitive soon due to developments in the United States

How do you kill 75,000 jobs and turn your valuable location into a disadvantage?

If you’re the Ontario government, you:

start a transition to renewable energy driven by politicians without any cost-benefit analyses;

when people with expertise in the energy and power sectors give advice on technical issues – for example, how much duplicate power backup Ontario would need to phase out coal and replace it with intermittent and costlier wind, solar and biomass-generated power – you ignore them;

you compound these initial policy mistakes with even more market interference.

Thus, when University of Guelph environmental economics professor Ross McKitrick and Fraser Institute co-author Elmira Aliakbari recently crunched the numbers, they found that the province that represents 40 per cent of Canada’s exports hurt its own ability to compete. Government policy in Ontario killed 75,000 manufacturing jobs.

That’s the headline number but here are some other ones:

Between 2005 and 2015, Ontario suffered a 28 per cent drop in manufacturing employment, only partly due to the 2008 recession. Manufacturing in the rest of the country bounced back after 2008 but Ontario’s numbers stayed down.

Ontario’s woes post-recession continued in large measure because of its power policy. Between 2010 and 2015, electricity prices for small and medium businesses increased 48 per cent in Ottawa and 50 per cent in Toronto. That compared with an average 15 per cent rise in the rest of the country in the same years.

The two authors blame a number of Ontario government actions for Ontario’s soaring power prices:

aggressively promoting renewable energy literally at any cost;

lousy, costly contracts with those same green energy companies;

phasing out coal in a hurry.

For anyone familiar with Ontario policy, there’s harmful irony in almost everything the provincial government did on this file. Just as the province enacted smart policy on the business tax side by lowering rates, to make the province more competitive, it undermined that potential advantage with poorly contrived, costly green energy policy. Thus the government killed two cost advantages Ontario once had over U.S. competitors, one of them being affordable energy.

More awful irony: Ontario offers different power rates to businesses depending on their size. So big businesses received a price discount, which means medium and smaller businesses – and residential consumers – bear higher costs.

When consumers began to loudly protest, the Ontario government beat a retreat and ordered a reduction in power bills by financing part of today’s costs through extra borrowing. But these now-subsidized lower prices will be costly.

The same day the Fraser Institute released its report, the Ontario auditor general accused the provincial government of an “unnecessary, complex financing structure” in order to hide those extra costs. Auditor general Bonnie Lysyk estimated that consumers will pay an extra $4 billion. That’s on top of the $39.4 billion that deferring today’s bills to future consumers will cost.

Ontario may find itself even less competitive soon due to other developments in the United States.

Natural gas is increasingly replacing coal-fired electricity and the cost of gas and gas-fired electricity is dropping. This change is helped along by the revolution in technology that has allowed ever-more exploration and extraction of natural gas. That’s the fracturing or fracking that allows more natural gas to be accessed and extracted economically.

That in turn is flooding the American market with cheap, cleaner energy that often – more irony for Ontario – replaces dirtier coal. Meanwhile, the increasing reliance on natural gas in the U.S. also helped send carbon emissions downward in the last decade.

The Americans are thus going where Ontario wanted to go: reductions in carbon emissions but at a fraction of the cost. The difference is that much of the progress in the U.S. is driven by the private sector. Ontario tried government intervention and paid for it in lost jobs.

None of this is surprising. Years ago, a friend who works for an energy company, and who understands the physical properties of power generation (how much electricity coal produces versus natural gas, or wind and solar) met with political staff at the Ontario Ministry of Energy.

None of them had a clue about any of the foregoing. Yet they and Ontario’s politicians made the decisions on the “transition” to ostensible clean energy. Of course Ontario’s electricity experiment was costly and crashed. The experiment also took 75,000 jobs down with it.